I’ve been questioned by a few of my clients about the fact that some articles have proven that Billionaires pay little or not tax. Their questions are always the same.
“If Billionaires pay little or no tax, then why do I have to pay?”
Sometimes it’s even something like, “Those Billionaires must have a much better accountant than I have.”
How is this even possible for a Billionaire to pay no tax?
Propublica was able to get the income tax information on America’s wealthiest entrepreneurs. The article detailing their findings is at the following web address.
According to the article, Jeff Bezos in 2007 paid no income tax. His personal wealth grew $3.8B that year, but his reported income was only $46M.
This income was mostly from interest and dividends that he was able to offset with other investment losses which brought his taxable income to zero. The point is that he didn’t have to pay income taxes on unrealized capital gains from the appreciation of his assets.
Donald Trump got an amazing amount of press when it was disclosed that he paid no income tax. The media frenzy that ensued always amazed me because anyone who’s ever done an income tax return with commercial real estate knows exactly why.
If you buy a building for $1M, after setting aside 10% for land, if it’s placed into service on the first day of the year you would get a depreciation deduction of $23,077. Imagine how much of a depreciation deduction you would get if you had billions of dollars in commercial real estate?
Of course Trump didn’t pay a dime in income tax. None of my long-term landlords do either.
The rules are the same for everyone. That includes you, me, and them.
Let me leave you with this.
America’s billionaires avail themselves of the same tax avoidance strategies that we all use. They’re just a lot better at it then we are.
The largest portion of their wealth comes from the ever increasing values of their stocks, bonds, and real estate. No gain is taxable until those assets are sold.
Depreciation is another big factor. We all use it. They just own a lot more property than the rest of us.
What’s the lesson?
Be a stock buyer rather than a stock seller. Buy real estate that will increase in value and hold onto it. Put your money into assets that will appreciate in value rather than cars and boats that will do nothing but go down in value.
You could shake a boney fist at the system and yell that it isn’t fair or you could be smart and use the same system to your own benefit. The choice is yours.
We’re all going to get through this. Let’s get through it together.
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